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Dabur: Growing everywhere!

May 28, 2007

Performance summary
Ayurvedic major, Dabur, has announced strong results for the quarter and full year ended March 2007. For FY07, the company on a consolidated basis has recorded 18% YoY and 32% YoY growth in revenues and net profits respectively. The operating margins have remained stable for the fiscal. While the revenues are lower by 5% than our estimates, the operating margins are in line with our estimated numbers.

Consolidated performance
Rs(m) 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Net sales 4,799 5,765 20.1% 18,995 22,337 17.6%
Expenditure 4,016 4,885 21.6% 16,088 18,842 17.1%
Operating profit (EBDITA) 783 880 12.4% 2,907 3,495 20.2%
EBDITA margin (%) 16.3% 15.3%   15.3% 15.6%  
Other income 22 71 223.7% 134 259 93.4%
Interest 24 28 15.9% 164 153 -6.7%
Depreciation 69 90 30.9% 312 408 30.8%
Profit before tax 713 834 17.0% 2,566 3,193 24.5%
Extraordinary item (127) -   (127) -  
Minority interest -6.1 -11.1 - 3 9 210.3%
Tax 80 54 -31.9% 300 372 23.9%
Profit after tax/(loss) 500 768 53.8% 2,141 2,830 32.2%
Net profit margin (%) 10.4% 13.3%   11.3% 12.7%  
No. of shares (m)** 573.3 862.9   573.3 862.9  
Diluted earnings per share (Rs)*         3.3  
Price to earnings ratio (x)*         29.5  
* 12 month trailing earnings
** increase in no of shares due to bonus and excersise of stock options

What is the company’s business?
Dabur is India’s fourth largest FMCG company with interests in health care, personal care and food products. The company’s name is generic to ‘ayurvedic’ products in India, and it has big brands like Vatika (hair oils), Chyawanprash, Hajmola, Amla oil and Lal Dant Manjan (oral care) under its stable. In FY04, Dabur approved the demerger of its FMCG and pharma businesses, into two separate listed entities. The move was aimed at bringing in more focus to both businesses, as well as to unlock value for shareholders. Further, the company acquired Balsara’s business in FY05 for a consideration of Rs 1.4 bn.

What has driven performance in FY07?
Growth across segments: The company reported a robust topline growth, driven by a pick-up in key categories in the consumer care division (up 17% YoY), foods (29% YoY) and its international business, which registered a healthy 25% YoY growth.

Segment Revenue
(Rs m) 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Consumer care 3,807 4,551 19.5% 15,142 17,669 16.7%
% of total revenue 79.3% 78.9%   79.7% 79.1%  
Consumer health 392 393 0.3% 1,486 1,622 9.2%
% of total revenue 8.2% 6.8%   7.8% 7.3%  
Foods 515 703 36.5% 2,012 2,600 29.2%
% of total revenue 10.7% 12.2%   10.6% 11.6%  
Others 85 119 38.9% 356 446 25.1%
% of total revenue 1.8% 2.1%   1.9% 2.0%  
Total 4,799 5,765   18,996 22,337  

The consumer care division (CCD) grew by 16.7% for FY07 led by strong performance of various key categories. Hair Care category has posted a strong growth of 16% during the year. While hair oil category grew by 13% YoY, shampoo category led by the ‘Vatika’ range grew by 31% YoY in the year. The key driver in hair oil segment was improved performance of Vatika, which grew 9% YoY, thus keeping the performance of the whole hair oil portfolio robust. While Amla grew at a steady rate of 11%, smaller brands like Anmol grew at a much faster pace. The growth in the shampoo category was mainly due to volume sales. Vatika shampoo was also the fastest growing shampoo brand for the year as it recorded 35% YoY growth as against category growth of 12.3% (as per the AC Nielsen data).

In CCD, the health supplement category posted a robust growth of 19% YoY for the year All the major brands in this category performed well. Chyawanprash registered a 20% YoY growth, while Dabur Glucose and Honey recorded 27% YoY and 15% YoY growth respectively. As part of company’s plans to introduce variants of Chyawanprash, it launched Chyawan Shakti (targeted at young adults) and Chyawan Prakash (sugar free variant) in the year. Currently, the contribution of the variant to the total sales is very small. However, the management is bullish on the growth in the next 5 years and expects it to be around 25% of the Chyawanprash franchisee.

Dabur reported a 23.7% volume growth as compared to category growth of 15.3% in the oral care segment. Toothpaste category recorded value growth of 27.9% YoY with strong performance by Red toothpaste (up 16%), Babool (up 49.3%) and Meswak (up 4.5%). Dabur’s share in toothpaste category increased by 130 basis points to touch 10.4% (volume share as per A C Nielsen). The red toothpowder witnessed growth of 7% YoY as against a decline last year

Sales in the digestive category picked up with overall growth of 6% YoY for the year. The Hajmola brand has done well during the year, with Hajmola tablets growing by 10.5% YoY and Hajmola candy by 18.4% YoY. However, Pudin Hara recorded a decline in sales of 10% YoY due to spurious products. The company is planning to introduce newer variants in the Hajmola category.

Sales in the baby care and skin care were flat for the year. The company launched new soap variants in the end of the year and hence much action could not be seen on this front. The company is launching new variants in the Vatika brand and new brand under Dabur, which would be based on aryurvedic platform.

The Home Care segment recorded a growth of 35.1% YoY with the Odonil brand growing by 28.2% YoY and Odomos brand posting a growth of 71% YoY.

Consumer health division (CHD): Consumer health division grew by 8% YoY. The division’s last year performance was higher as the company had made acquisition. This division had been under consolidation during the year. The company had to also close down some stockist, which were not viable. It is looking at more acquisitions going forward and the division should grow in line with overall business in the current year.

Foods division:The foods business recorded growth of 28% YoY for the year. The flagship brand Real posted 28.4% YoY growth. The division also introduced three new variants launched under Real. The company is also looking to enter in to the ready to eat segment, which is growing rapidly. The management expects the division to clock a rate of 30% this year.

International division: IBD recorded a growth of 29.3% YoY with strong performance across all focus markets. Sales in GCC region increased by 29% YoY while Dabur Egypt grew by 59% YoY. The company has set new manufacturing facilities at RasAlKhaimah, UAE catering to Middle East and African markets with investment of Rs 360 m planned during FY08.

Rs(m) 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Net sales 3,327 4,448 33.7% 13,697 17,780 29.8%
Expenditure 2,704 3,714 37.3% 11,317 14,774 30.5%
Operating profit (EBDITA) 623 734 17.9% 2,380 3,006 26.3%
EBDITA margin (%) 18.7% 16.5%   17.4% 16.9%  
Other income 22 15 -29.8% 54 165 208.6%
Interest 2 0 -90.0% 57 44 -21.7%
Depreciation 74 64 -13.5% 233 285 22.1%
Profit before tax 568 685 20.6% 2,144 2,842 32.6%
Extraordinary item 5 -   5 -  
Tax 71 28 -60.8% 258 321.4 24.7%
Profit after tax/(loss) 502 657 30.9% 1,891 2,521 33.3%
Net profit margin (%) 15.1% 14.8%   13.8% 14.2%  

Standalone performance: The company’s topline grew by 29.8% YoY for the year while bottomline was up 33% YoY. The contribution of the standalone to the total sales has increase to 80% in FY07 from 72% in FY06.

Consolidated cost break-up
As a % of net sales 4QFY06 4QFY07 FY06 FY07
Total Cost of goods 42.7% 44.8% 42.5% 43.5%
Staff Cost 8.2% 6.9% 7.6% 7.5%
Advertising 9.3% 11.3% 11.7% 11.5%
Other Expenditure 23.4% 21.7% 22.9% 22.0%

Stable margins: On the operating front, the EBIDTA margins improved by 30 basis points to 15.6% for the consolidated business in FY07. There has been some inflationary pressure, but the company has been able to manage the same by taking moderate price increases in the range of 4% to 5%. In addition, the leverage due to lower growth in fixed costs has helped maintain the margins. The consumer division witnessed strong margins due to higher volume sales and price rises. However, the foods division was below expectations due to higher inflationary pressure.

PBIT 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Consumer care 919 1,119 21.8% 3,555 4,298 20.9%
% of total PBIT 83.3% 86.6%   85.5% 87.1%  
Consumer health 89 92 4.2% 379 395 4.1%
% of total PBIT 8.0% 7.1%   9.1% 8.0%  
Foods 92 78 -15.7% 213 230 8.1%
% of total PBIT 8.4% 6.0%   5.1% 4.7%  
Others 4 3 -8.6% 10 12 18.3%
% of total PBIT 0.3% 0.2%   0.3% 0.2%  
Total 1,104 1,293   4,158 4,936  

Bottomline picture: Strong topline, stable margins, higher operating income and lower interest costs resulted in the 32% YoY growth in the bottomline. Excluding the extraordinary item (loss on trade investments), the profits grew by 24.8% YoY

What to expect?
At the current price of Rs 97, the stock is trading at 29.5 times its 12-months trailing earnings. The company’s core portfolio is performing well. It is coming up with brand extensions and innovations. It is also expanding its presence in newer regions. The company has been maintaining it margins by operational efficiencies and price hikes. It is also venturing into the retail format with an investment of Rs 1400 m. The same will be an extension of the company’s health care products business and is expected to open in 3QFY07. Going forward, we find the company’s growth prospects healthy. However, valuations are a cause for concern.

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